Summary of this article
Gold prices have fallen more than 5 per cent in September
Higher US yields, a stronger dollar and rate hike expectations are pressuring gold
Analysts differ on whether investors should buy now or wait
Gold prices are trading below the Rs 1.5 lakh mark per 10 grams, hovering near a seven-week low as expectations of tighter US monetary policy weigh on the precious metal.
October gold futures on the Multi-Commodity Exchange (MCX) were largely flat at Rs 1,46,740 per 10 grams as of 12:25 PM on September 29. The contract has fallen more than 5 per cent this month, giving up a large part of the gains seen during the August rally.
Gold had surged sharply in August, with the domestic price rising 12 per cent during the month, according to the World Gold Council. Year-to-date, gold has delivered a negative return of 2.44 per cent as of September 28, according to World Gold Council data.
Why Is Gold Price Falling
The latest decline is largely driven by higher US Treasury yields, which have increased the cost of holding non-yielding assets such as gold.
The US 10-year Treasury yield has climbed to around 5.25 per cent, while the 30-year yield has risen to about 5.56 per cent. Higher bond yields make interest-bearing assets more attractive relative to gold, which does not pay interest or dividends.
The dollar has also strengthened. The US Dollar Index, which measures the greenback against a basket of six major currencies, rose to around 101.32 and has gained more than 2.5 per cent over the past three weeks.
Oil prices have added another layer of pressure. Brent crude was trading above $107 a barrel, while West Texas Intermediate was around $94 a barrel as of 12:25 PM. Rising crude prices have revived concerns about inflation, which could make it harder for the Federal Reserve to ease monetary policy.
Pinky Yadav, commodity fundamental analyst at Choice Broking, said that concerns over a possible Bank of Japan rate hike, the unwinding of the yen carry trade, and the Indian rupee breaching Rs 96 to a dollar have added to market volatility. Domestic physical demand has also been temporarily subdued during the Shradh Paksh period, she said.
Markets are also pricing in a higher chance of another US rate hike, with the CME FedWatch tool putting the probability above 70.3 per cent.
Kaynat Chainwala, assistant vice president of commodity research at Kotak Securities, said the fall below Rs 1.5 lakh was primarily a macroeconomic development rather than a deterioration in gold demand.
She said the latest sell-off intensified after stalled US-Iran talks pushed oil prices higher and strengthened expectations that the Federal Reserve could keep its monetary policy tight for longer. She sees this decline as a “meaningful correction” rather than a “routine pullback."
Should Investors Buy Gold After The Correction
The recent fall has split the view on whether investors should buy now or wait for further clarity.
Yadav said inflation risks, central bank buying and investment demand continue to support gold over the longer term. "Despite short-term headwinds, gold’s structural bullish outlook remains fully intact," she said.
According to Yadav, higher interest rates are increasing the burden of public debt, while gold demand is being supported by strong Chinese imports, fresh exchange-traded fund (ETF) inflows and continued central bank purchases.
"With central bank reserve buying remaining resilient and domestic festive and wedding demand approaching, this price correction presents a compelling strategic buying opportunity for long-term investors to accumulate gold on dips," she said.
Chainwala, however, said investors should not assume that the recent decline has already established a bottom.
"The key question now is whether this correction develops into a deeper reset or starts to find a floor," she said. For investors with a longer horizon, she favours staggered buying rather than investing the entire amount at one price. She said a sustained recovery would require stabilising crude prices, easing US yields and a less hawkish Fed outlook.
"The near-term environment remains one of elevated volatility rather than a confirmed bottom," Chainwala said. "The more important signal for a sustained recovery would be a combination of stabilising crude prices, easing US yields and a less hawkish Fed outlook."
What Should Gold Investors Watch Next
Upcoming US inflation and labour-market data will be important for gold as investors assess the Federal Reserve's next policy move.
Crude oil prices will also remain important. A moderation in oil and Treasury yields could ease some of the pressure on gold, while another rise could reinforce inflation concerns.
The World Gold Council, in its September 28 weekly markets monitor, also flagged US monetary policy and geopolitical tensions as key factors for gold in the near term.
Investors will also track festive and wedding-season demand in India. The World Gold Council said jewellery demand had softened after the August price rally, although wedding-related buying remained relatively resilient and investment demand stayed steady.
